The Reserve Bank has warned banks and households to remain prudent with their lending and borrowing practices amid record low rates.

With house prices rising at their quickest pace in three years, the central bank today gave another signal it was closely watching how the property market reacted to record low interest rates, cautioning home-buyers not to expect a repeat of the bumper house price growth of the 1990s and early 2000s.

'Realistic expectations': The RBA has cautioned prospective home owners against expecting house prices to keep rising at their present levels. Photo: Rob Homer

‘‘An increase in housing market activity more generally is not surprising given reductions in interest rates. However, it is important that those purchasing property maintain realistic expectations of future dwelling price growth,’’ the bank said in its half-yearly Financial Stability Review.

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‘‘In contrast to the decades leading up to the crisis – when dwelling prices grew rapidly in response to disinflation and financial deregulation – long-run future growth in dwelling prices might be expected to be more in line with income growth.’’

The comments are a reference to the fact that house prices surged over the 1990s due to one-off factors that made credit much cheaper.

With the introduction of an inflation target of 2 to 3 per cent, interest rates fell sharply over the 1990s.

At the same time financial deregulation sparked increased competition between lenders, which further drove down the cost of credit.

The RBA said data showed that banks had broadly maintained their lending standards since late 2011, although the share of high loan-to-valuation ratio approvals by smaller institutions such as credit unions and building societies was trending upwards.

‘‘The relatively modest rate of growth in credit, and hence bank balance sheets, poses a strategic challenge for Australian banks,’’ the RBA said.

‘‘There are some signs that households are taking on more risk in their investment decisions,’’ the RBA said.

‘‘While increased financial risk-taking is an expected outcome of lower interest rates, it is important that households understand, and appropriately account for, the financial risks they take.

‘‘Given that household indebtedness and gearing are still around historically high levels, continued prudent saving and borrowing behaviour would help support households’ ongoing financial resilience.’’

The Reserve’s latest comments on the housing market come as top regulators closely monitor how households and banks react to the slump in the cash rate to a 60-year low of 2.5 per cent.

It also noted the sharp increase in purchases by property investors in recent months, highlighting home sales in the Sydney market that were exceeding expectations by ‘‘wide margins.’’

Figures from RP Data-Rismark show the rolling three month gain in capital city house prices was 4 per cent, the highest three-month capital gain since April 2010.

Last week the assistant governor Malcolm Edey last week said talk of a housing bubble was ‘‘unrealistically alarmist, saying that on average, home prices had risen in line with incomes over the past ten years.